Shedding light on dark store tax
Sen. Stroebel helps draft legislation to help clarification


Dec. 7, 2016

West Bend officials who petitioned state representatives for assistance regarding challenges to property values from retailers are one step closer to receiving clarity for the situation.

State Sen. Duey Stroebel helped draft legislation to be presented in the next Legislative session that would clarify how assessors can value commercial properties in their jurisdictions. The drafted language requires real property to be assessed at “its highest and best use” and determines the assessor will establish the value of leased or rented locations based on the payments the owner will receive.

“This is really, just to say, to allow our assessors to utilize the lease or the income stream that comes from the property in order to make a value determination or at least have a chance to factor that in,” Stroebel said.

West Bend has been acutely aware of this issue, as well as the issue of dark stores, since one retailer, Walgreens, is challenging the city’s assessment of its property where lease agreements are at the center of the debate.

The company works with contractors to purchase properties in various locations and construct brick-and- mortar stores to certain standards. They will then establish lease agreements that cover the costs for the property taxes and ancillary expenses such as rent, operating and development costs. Company representatives argued their lease agreements should not be factored in the assessment — effectively lowering the assessment and subsequently the taxes they owe.

The city assessed two locations at $6.75 million and $5.7 million, but company managers believed they should be assessed at $2.4 million, per previous reporting from the Daily News.

The potential legislation permits assessors to consider the stream of payments the company derives from its operations.

“What we are saying in Wisconsin is that you can look at income, you can look at the leases because these very same properties you see, the Walgreens that say it is only worth such and such amount because that is the same as this vacant store down the street, they are both brick, the same size and the same amount of land — they are two totally different animals,” Stroebel said. “Those very same buildings, when they sell them, they market them — here is the cash flow and they apply a capitalization rate to that cash flow to determine a value.”

Other retailers such as Menards and Shopko want to alter the method by which their stores are valued, claiming their properties should be valued when they are vacant instead of when they are operating. But city officials, including Assessor Jeff Yoder, argue they are not comparable situations. Both parties are locked into an ongoing legal case.

The city could lose about $150,000 in tax revenue if these large retailers have their way, but the expenses continue to be a factor. The money must be accounted for in another way and many are beginning to shift the burden to residential property owners.

“I would say it is a start,” Yoder said when asked about the proposed legislation. “It still has to clarify how the assessors will assess properties and there is also the Wisconsin Properties Assessment Manual, that is the other part we follow and hopefully those two will support one another and make it clear.”

It may not end the lawsuits anytime soon, however, because retailers may challenge the legislation if it even passes — arguing it is an incorrect method to value property.

“That is to be determined,” Yoder said when asked if the legislation will end the dispute in the courts. “I don’t know. Nobody knows or has a crystal ball how this will affect it. It could definitely have an impact on them because the lawyers will use this legislation in the fight. I am sure it could be challenged.”

Stroebel was also unsure.

“I am not an attorney to say that it overturns it (court cases), but right now (assessors) are precluded from using the cash flow to evaluate the properties,” he said.

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